Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.

The Zacks Earnings ESP, Explained

The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.

Should You Consider General Motors?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. General Motors (GM Quick QuoteGM - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.80 a share, just five days from its upcoming earnings release on January 28, 2025.

By taking the percentage difference between the $1.80 Most Accurate Estimate and the $1.75 Zacks Consensus Estimate, General Motors has an Earnings ESP of +2.85%. Investors should also know that GM is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

GM is just one of a large group of Auto, Tires and Trucks stocks with a positive ESP figure. Paccar (PCAR Quick QuotePCAR - Free Report) is another qualifying stock you may want to consider.

Paccar, which is readying to report earnings on January 28, 2025, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $1.70 a share, and PCAR is five days out from its next earnings report.

The Zacks Consensus Estimate for Paccar is $1.68, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.19%.

GM and PCAR's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.

Find Stocks to Buy or Sell Before They're Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>